Surety Bond Professionals is a family owned and operated bonding agency with over 75 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your performance bond needs.
What Are Nebraska Performance Bonds?
Nebraska performance bonds serve the important purpose of protecting construction project owners against the financial harm that can result from a contractor’s failure to complete a job according to contract specifications.
A performance bond helps ensure contractor compliance with regulatory and contractual requirements and provides a way to compensate the project owner to be compensated for monetary damages when violations do occur.
Who Needs Them?
Nebraska’s “Little Miller Act,” the state’s version of the federal Miller Act, is officially known as the Nebraska Prompt Payment and Construction Lien Act. It mandates performance bonds (and payment bonds) from contractors before they can be awarded public works projects valued in excess of $15,000. The bond must be in an amount equal to 100% of the contract value.
Private construction projects are not subject to this state bonding requirement. However, private project owners can require performance bonds from their contractors and often do so for high-value projects.
How Do Nebraska Performance Bonds Work?
Every Nebraska performance bond is legally binding on its three parties:
- The public contracting agency or private project owner (known as the “obligee”),
- The contractor (the “principal”), and
- The bond’s guarantor (the “surety”).
The legal obligation to pay any claim the surety determines to be valid belongs entirely to the principal. However, the surety has guaranteed the payment of claims by agreeing to extend credit to the principal if necessary. In practice, the surety will pay the claim on the principal’s behalf. The principal must then repay the resulting debt according to the surety’s credit terms. Failing to do so can result in the surety initiating legal debt recovery proceedings against the principal.
How Much Do They Cost?
The premium the principal will pay for a Nebraska performance bond is determined by multiplying the bond amount by the premium rate.
The obligee sets the required bond amount, and the surety assigns the premium rate based on the risk entailed by agreeing to extend credit to the principal. The risk of greatest concern is the surety not being repaid a claim paid on the principal’s behalf, as measured by the principal’s personal credit score.
A principal with a high credit score is viewed as a low risk to the surety, which means the premium rate will be low. However, someone with a low credit score presents a greater risk, which must be offset with a higher premium rate.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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